What is Permanent Life Insurance?

Permanent life insurance, also known as whole life insurance, is a form of life insurance that provides lifelong coverage to the policyholder. Unlike term life insurance, which provides coverage for a specified period of time, permanent life insurance offers coverage for the individual’s entire life, as long as the policy is active and premiums are paid. This type of insurance policy is designed to provide beneficiaries with a guaranteed benefit upon the death of the policyholder.

Types of Permanent Life Insurance

There are four main types of permanent life insurance: whole life, universal life, variable life, and variable universal life. Each type of policy has its unique characteristics, benefits, and drawbacks.

Whole Life Insurance

Whole life insurance is the most common type of permanent life insurance. It offers a guaranteed death benefit and a fixed premium, which remains the same throughout the policy’s duration. Additionally, whole life policies accumulate cash value over time, which can be borrowed against or used to pay premiums.

One of the downsides of whole life insurance is that it tends to be more expensive than other types of policies, as the premiums are designed to cover the policyholder for their entire life span. Additionally, whole life policies may not be as flexible as other types of policies, as changes to the policy’s face value or premium may be limited or come with fees.

Universal Life Insurance

Universal life insurance is a flexible form of permanent life insurance that offers a guaranteed death benefit and an adjustable premium. This type of policy allows for changes in the premium amount and the death benefit amount, as well as the ability to borrow against the policy’s cash value.

One of the advantages of universal life insurance is that it can provide policyholders with more control over their policy’s value and premiums. However, the increased flexibility of this type of policy also comes with greater responsibility, as policyholders may need to manage the investment portion of their policy and adjust their premium payments if the policy’s cash value is not sufficient to cover them.

Variable Life Insurance

Variable life insurance is a type of permanent life insurance that allows policyholders to invest a portion of the policy’s premiums into a variety of investment options, including stocks, bonds, and mutual funds. The policy’s cash value will vary depending on the performance of the investments selected.

One of the benefits of variable life insurance is the potential for higher returns than other types of policies. However, this comes with greater risk, as the policy’s value can decrease if the investments selected do not perform well. Additionally, variable life insurance policies tend to have higher fees and expenses associated with managing the investments.

Variable Universal Life Insurance

Variable universal life insurance is a combination of universal life and variable life insurance. This type of policy offers the flexibility of universal life insurance, with the added potential for investment returns through the policy’s investment options.

Like variable life insurance, variable universal life insurance policies come with greater risk due to the investment component. However, policyholders have more control over their policy’s investments and premiums, which can make this type of policy more appealing to individuals who want to take on more risk in exchange for potentially higher returns.

FAQ about Permanent Life Insurance

Is permanent life insurance worth it?

Whether permanent life insurance is worth it depends on an individual’s specific circumstances and goals. Permanent life insurance tends to be more expensive than term life insurance, but it also provides lifelong coverage and can accumulate cash value over time. If an individual wants to ensure their beneficiaries receive a guaranteed benefit upon their death and has disposable income to invest in a more expensive policy, permanent life insurance may be worth it.

Can the death benefit of a permanent life insurance policy increase?

The death benefit of a permanent life insurance policy can increase if the policyholder chooses to add a rider to the policy. Riders can add additional coverage options, such as accidental death benefits or increased death benefits, but they typically come with an additional cost.

Is permanent life insurance taxable?

The death benefit of a permanent life insurance policy is typically not taxable at the federal level. However, any cash value accumulated in the policy may be subject to taxes if withdrawn or surrendered.

Can I change the beneficiaries on my permanent life insurance policy?

Yes, permanent life insurance policies typically allow policyholders to change their beneficiaries at any time. Policyholders should consult with their insurance provider or financial advisor for specific instructions on how to make changes to their policy.

What happens if I stop paying premiums on my permanent life insurance policy?

If a policyholder stops paying premiums on their permanent life insurance policy, the policy may lapse, and the coverage will end. Additionally, any cash value accumulated in the policy may be forfeited. However, some policies may offer a grace period where the policyholder can catch up on missed payments without losing coverage.

Conclusion

Permanent life insurance can provide individuals with lifelong coverage and guaranteed death benefits. However, it tends to be more expensive than term life insurance and may not be the best option for everyone. It’s essential to consider an individual’s specific needs, goals, and budget when selecting the right type of life insurance policy.